Posts Tagged ‘Europe’

HCL Technologies Ltd (HCLT.NS), India’s fourth-largest IT services exporter, reported on Thursday quarterly growth in its dollar-denominated revenue that missed analyst estimates, sending the company’s shares down by as much as 2.5 percent.

For most IT services companies, analysts and investors track the dollar sales numbers as clients oversees get billed in that currency. For the quarter ended June, HCL posted a 3.4 percent rise from March to $1.4 billion, below industry leader Tata Consultancy Services’ (TCS) (TCS.NS) 5.5 percent increase.

“We were expecting it to grow about 4 percent. In the past HCL has been able to keep at about the same dollar revenue growth as TCS,” said Ankita Somani, analyst at brokerage MSFL Research.

HCL is part of a $108 billion Indian outsourcing sector that generate the lion’s part of their sales by providing services like IT network installation and development of software applications to Western clients.

Revenue from the Americas, HCL’s largest market, saw a rise of 12 percent in the quarter, while sales in Europe, where the company’s clients include a British government agency and a Swiss pharmaceutical company, rose 25 percent.

Consolidated net profit in its fiscal fourth-quarter ended June 30 rose 54 percent to 18.34 billion rupees ($305.4 million) from 11.93 billion rupees a year earlier, the company said.

Analysts, on average, had expected the company to report a net profit of 16.15 billion rupees.

HCL shares were trading 2.5 percent lower at 1,556.95 rupees at 10:51 a.m., while the Nifty was down 0.1 percent.

Research firm Gartner says global IT spending is expected to total $3.7 trillion in 2014, up 2.1 percent from a year earlier.

Large firms in Europe are losing over 130,000 jobs each year in IT, finance and other areas, as jobs are increasingly offshored to cheaper locations, meaning that by 2017, some 1.9 million European jobs will have disappeared, according to new report.

Offshoring, combined with technological advances that can replace jobs, and the euro zone’s low-growth business environment, could result in the loss of half of all “back office” jobs that existed in Europe in 2002, according to a report by consulting firm The Hackett Group. Of the roughly 4.2 million business services jobs that existed in Europe in 2002, 46 per cent, or 1.9 million, will have disappeared by 2017.

Indian IT companies are aggressively pursuing a strategy of adding local flavour to their European operations. They realise this would be the only route to get significant business opportunities from the continent, which so far has been quite wary about outsourcing and offshoring. Given the diversity in Europe, Indian IT companies are now focused on establishing a strong local presence by employing nationals of countries they are based in.

“The European market is generally conservative and they take a long time to decide on IT outsourcing. A strong local presence by Indian companies will give them better access,” says Pradeep Mukherji, president, Avasant, an IT-BPO advisory firm.

Indian IT companies are taking the inorganic route, the latest example being acquisition by TCS of French company Alti for R530 crore. The acquisition gave TCS 1,200 employees with a presence in France, Belgium, Switzerland and Algeria. The other IT majors from India who have taken this route are Infosys, Wipro and HCL Technologies. In September last year, Infosys acquired Lodestone, a Switzerland-based management consultancy firm, for around $350 million. Infosys got close to 800 people through the acquisition, with a majority of people based in Europe. The buyout also gave Infosys access to over 200 clients across multiple sectors.

HCL’s acquisition of UK-based Axon in 2008 gave it over 2,000 employees, while TCS, which bought BPO firm Pearl in UK in 2005, got around 950 people. Wipro has made several smaller acquisitions in Europe in the past like NewLogic, Saraware and Enabler. Similarly, Cognizant recently announced the acquisition of German firm C1 to increase its local presence.

Earlier, the overwhelming percentage of revenue for Indian IT companies in Europe came from the UK, but this has been steadily shifting over the past couple of years. This is reflected in the kind of presence they have built over the years in countries such as Italy, Spain, Nordics, Portugal, Belgium, etc.

Indian IT companies have also steadily opened development centres in the continent, primarily in eastern Europe in countries such as Czech Republic and Hungary, given the specialised IT skills available in this region.

Pradeep Udhas, partner and head, IT/ITeS, KPMG India, feels the inorganic route is the best way for Indian companies to penetrate Europe. “There is an acceptability issue in Europe, which includes language, culture and other areas. Unlike IBM and Accenture, which have a global presence, Indian IT firms have very small set-ups.”

Analysts point out that the recent acquisitions by Indian companies in Europe is more of a strategic fit than anything else. “I don’t see these acquisitions as major revenue boosters. Most leading players are sitting on a good cash pile and valuations of these companies are not expensive to strike a deal,” notes Ankita Somani of Angel Broking.

Of the $76-billion IT-BPO exports from India, Europe contributes about 25%.

Indian IT companies are aggressively pursuing a strategy of adding local flavour to their European operations. They realise this would be the only route to get significant business opportunities from the continent, which so far has been quite wary about outsourcing and offshoring. Given the diversity in Europe, Indian IT companies are now focused on establishing a strong local presence by employing nationals of countries they are based in.

“The European market is generally conservative and they take a long time to decide on IT outsourcing. A strong local presence by Indian companies will give them better access,” says Pradeep Mukherji, president, Avasant, an IT-BPO advisory firm.

Indian IT companies are taking the inorganic route, the latest example being acquisition by TCS of French company Alti for R530 crore. The acquisition gave TCS 1,200 employees with a presence in France, Belgium, Switzerland and Algeria. The other IT majors from India who have taken this route are Infosys, Wipro and HCL Technologies. In September last year, Infosys acquired Lodestone, a Switzerland-based management consultancy firm, for around $350 million. Infosys got close to 800 people through the acquisition, with a majority of people based in Europe. The buyout also gave Infosys access to over 200 clients across multiple sectors.

HCL’s acquisition of UK-based Axon in 2008 gave it over 2,000 employees, while TCS, which bought BPO firm Pearl in UK in 2005, got around 950 people. Wipro has made several smaller acquisitions in Europe in the past like NewLogic, Saraware and Enabler. Similarly, Cognizant recently announced the acquisition of German firm C1 to increase its local presence.

Earlier, the overwhelming percentage of revenue for Indian IT companies in Europe came from the UK, but this has been steadily shifting over the past couple of years. This is reflected in the kind of presence they have built over the years in countries such as Italy, Spain, Nordics, Portugal, Belgium, etc.

Indian IT companies have also steadily opened development centres in the continent, primarily in eastern Europe in countries such as Czech Republic and Hungary, given the specialised IT skills available in this region.

Pradeep Udhas, partner and head, IT/ITeS, KPMG India, feels the inorganic route is the best way for Indian companies to penetrate Europe. “There is an acceptability issue in Europe, which includes language, culture and other areas. Unlike IBM and Accenture, which have a global presence, Indian IT firms have very small set-ups.”

Analysts point out that the recent acquisitions by Indian companies in Europe is more of a strategic fit than anything else. “I don’t see these acquisitions as major revenue boosters. Most leading players are sitting on a good cash pile and valuations of these companies are not expensive to strike a deal,” notes Ankita Somani of Angel Broking.

Of the $76-billion IT-BPO exports from India, Europe contributes about 25%.

The EMEA region saw $762m worth of IT services contracts signed at the beginning of this year. This was a 20% fall in contract values in the first three months of 2013 compared to the same period in 2012. This was according to the latest report from ISG, which registers all contracts worth over €4m.

I thought I would publish ISG’s list of the companies that took the biggest shares of this spend. What is a surprise is IBM’s absence? Strange, in 2009 according to Gartner IBM was the number one IT services firm in Western Europe (which accounts for most the EMEA spend.)

Most the usual suspects are all there but there are also a few I don’t know at all, as well as some specialists thrown in.

Top 20 IT services firms in terms of total EMEA contract value won in the first three months of 2013. This is in alphabetic order

Increased protectionism issues, proposed offshoring bans, visa fee hikes and a saturated market—this is the present scenario in the United States. The region might boast of a significant 60% business for Indian players, but these BPO vendors are getting smarter and do not want to keep all their eggs in one basket. Attractive margins, vastly untapped regions, coupled with an urge by European companies to cut costs through outsourcing is compelling BPO providers like EXL Service, Infosys BPO, Genpact, Intelenet Global Services,WNS Global Services to increase their share in this market.

Today, Indian vendors have captured 37% share in the $10-12 billion European BPO market. In spite the European crisis last year, these providers maintained 30% revenues from the market (including UK, the second largest market) and did not decrease their concentration in Europe. The $12.4-billion ITeS industry might rejoice at the US Senate’s recent decision to block the passage of an anti-offshoring bill, but deep within they want to mitigate risk. They are further concentrating on enhancing delivery capability and increasing headcount by opening new centres in Europe.

Take for instance EXL Service, the country’s third largest pure play BPO which gets 75% revenue from the US, but is focusing to expand its footprint in the European market. Europe gives the company 25% of its revenue and a major 22% comes from the UK. Rohit Kapoor, CEO at EXL Service says, “I vision a split of 70% from the US and the rest 30% from Europe within a year. Right now, we have very little business from continental Europe. The segments we will focus on are insurance, utilities and banking process and we will continue to hire people in continental Europe.”

Large insurance carriers, including British Gas, being EXL’s primary clients, European crisis is not a major concern for the company. In the long term, EXL Service has targeted its revenues to reach 10% from Europe, except for the UK, in the next two years as against 3% at present.

Infosys BPO MD and CEO Dandapani Swaminanatan believes that Europe is a very important and key area for the BPO. “Our investment should get doubled in Poland in next 18 months from $10 million presently.

Also, we should hire another 550 people in 12 months in Poland, which are presently 950 there.” On the Ohio issue and the US visa fee hikes, he notes that a short term impact in one region will have a balance from another region as counterbalance and thus Infosys BPO is also looking at potential geographies like Europe. “We are looking at expanding not only in Poland and Czech Republic, but in and around Europe. Today, there is a lot of interest from the European companies.” Presently, Infosys as a whole has 20% share from the European market, which is expected to increase significantly in long term.

Genpact, the country’s largest BPO with 2,500 employees in Europe gets 10-12% revenues from European market. Ahmed Mazhari, vice-president for business development at Genpact Europe says, “Germany and France are untapped markets and there is huge business opportunity here.” But Ahmad feels that Genpact eyes Europe very strongly as a delivery capability centre which would also serve a lot of American companies that have a significant base in the European continent. In March, Genpact announced it would expand its presence in Romania by acquiring a new facility in the Transylvanian city of Cluj-Napoca. The company expects to create several hundred new jobs in Romania, being one of the most active local employers in 2010.

The competitive edge

Interestingly, there are a few examples of players like WNS Global Services and Intelenet Global Services, which have been strong in the European market for a while now and might give an competitive edge to the service providers now expanding in the region.

A classic example is WNS Global Services, which gets 60% of its revenue from the European market and has increased its headcount in the European market to 800 recently. “Our centre in Romania offers services in excess of 25 languages to our European clients. The headcount in Europe region has increased by almost three times in the FY 09-10 since FY 07-08,” says Keshav Murugesh, CEO, WNS. On the entry of new vendors into the region, he believes that it is good to have competition as it expands the market. “We are focused on building the pipeline in every verticals like insurance, banking and financial services and primarily the government sector, which is an exciting area for Indian BPOs.”

Ross Tisnovsky, vice-president, research, Everest Group, a global management consulting notes that Europe is a tougher market for Indian companies as it will automatically require more onshore presence as compared to the US. Having onshore resources means having onshore employees and it is hard to compete. Murugesh elaborates: “In the medium and long term, the public sector will drive more onsite presence in centres such as Manchester, London and Romania. We are looking at how do we expand the Romania centre. We are winning a lot of deals in Europe which need a lot of on site and nearshore offerings.”

Even Intelenet Global Services gets 50% revenue from UK and Europe combined; UK is the largest market for it. To expand its presence in Europe, the company announced a new centre in Febraury, located in the Southern part of Poland this year. This will enhance the company’s near shore capabilities in Europe. Intelenet plans to grow the facility to 500 seats in around a year, which is presently 200. Sandeep Aggarwal, executive vice-president, (sales, solutions and transition), Intelenet Global Services, believes that geographical spread, language capability and disaster recovery are the main reasons why BPO vendors are looking at expansion in the European market. Pankaj Sharma, from CFTI( Centre of transforming India) agrees and highlights, “ US being a mature market, Indian providers are not able to provide integrated and end-to-end services to US buyers. In some cases, the European regions might provide 10 to 15% higher margins to us as European companies are willing to pay more.”

It is obvious that over-dependence on the US is high-risk for the Indian BPO industry. “This risk can be mitigated by targeting other markets. Europe, the most prominent market apart from US, with 63% of all developed countries in the continent, the market still in its nascent phase and increasing trend of offshoring—there is immense opportunity for vendors to tap this market,” concludes Saugata Sengupta , senior analyst at Tholons Investment Advisory.

The Indian information technology sector is likely to witness heavy consolidation in the coming months as mid-size companies struggle to sustain growth amid a rising anti-outsourcing tirade in the United States.

“We expect many mergers and takeovers in the IT sector. It will be among Indian companies and also overseas deals. This is very important for mid-size companies,” P.N. Sudarshan, senior director at global consulting firm Deloitte Touche, told media in an interview.

He said the focus of Indian outsourcing companies in the coming months will be on Europe and the Asia-Pacific region.

“The map is much wider now. There are good opportunities in European countries like Germany and France and also in Asia-Pacific. Outsourcing companies will have to diversify revenue base to sustain growth,” Sudarshan said.

The $50-billion Indian IT industry gets over 60 percent of its revenue from the US. Nearly 20 percent of the revenue come from Europe and rest of the world accounts for 20 percent.

Eric Isabey, chairman of Pierre Audoin Consultants, who is advising the Indian IT firms on European ventures, told IANS recently that software giants like Infosys, Mahindra Satyam, MindTree and HCL Technologies were looking for local partners in Germany and France to expand their business in the European countries.

“We see a lot of value creation in cross-border deals. It will help Indian companies in getting a strong foothold in Europe,” said Sudarshan, adding such deals were very important for mid-size companies.

According to a Deloitte survey, smaller IT companies have not been able to catch up with their larger counterparts in the last three years.

Sudarshan said Deloitte would publish the survey result in the second week of November. “Nomination is closed and we are now analysing the data. The findings will be available in November.”

On changing dynamics of the Indian technology sector, Sudarshan said software companies have increased their dominance in the last few years. The share of software in the sector has increased to 80 percent while that of telecommunications and networking declined to six percent, according to the 2009 survey of Deloitte’s Technology Fast 50.

The Magic Quadrants evaluation witnessed participation from vendors operating across Eastern and Western Europe
HCL Technologies, a leading Global IT services provider, announced that it has been positioned in the Gartner Magic Quadrant for Desktop Outsourcing, Europe and Gartner’s Magic Quadrant for Helpdesk Outsourcing for Europe. The Magic Quadrants evaluation witnessed participation from vendors operating across Eastern and Western Europe.

Speaking on the achievement, Anant Gupta, President, HCL Technologies Infrastructure Services Division (HCL ISD) said, “It is a great achievement for HCL Technologies to be included in Gar tner’s’Magic Quadrant for Desktop and Helpdesk outsourcing for the European market. Few years back, we set out on a strategy to increase’services flexibility for our end user computing customers through increasing local presence, having a strong partner eco-system, investing in new oferings and customer advisory programs.

Today, we’ve reached respectable milestones as per plan and the same is reflected in the Magic Quadrant by Gartner. Europe, being a diferent market with varied cultures and customer demands, we feel this evaluation reflects our strengths and favorable positioning vis-a-vis regional and global players.” HCL provides Desktop outsourcing s ervices through it s Global Deliv ery Mode comprising of an optimum m ix of network of internal and onsite resources including a robust ecosystem of partners across Europe.